Remarks by
Robert M. Gallagher
Special Executive Advisor for
Oil and Gas
Office of Fossil Energy
U.S. Department of Energy
To the
Permian Basin Petroleum Association Annual Meeting
in Midland, TX
October 29, 1998

Good afternoon ladies and gentlemen. It is really a pleasure to speak with you today and I want to thank you for inviting me. As most of you may know, I have recently joined the U.S. Department of Energy. I now serve as the special executive advisor for oil and gas at the Office of Fossil Energy. One of my roles at Fossil Energy will be to maintain the dialogue with the oil and gas industry, listen to your concerns, and jointly seek solutions to your problems.

I am also very happy to join the oil and gas team of Secretary Richardson, who strongly believes in the importance of our oil and gas industry for the Nation's well being. In a speech last week, the Secretary said that he wanted to be remembered as a friend of the oil and gas industry and that he worked hard to make the industry healthier than when he found it. I am determined to contribute to making his wish come true.

The oil and gas industry is a significant and crucial component of the domestic economy. It employs 1.5 million workers and accounts for 7 percent of the economy's gross output. Oil and gas production activities contributed more than $560 billion to domestic economic activity in 1997. The U.S. leads the world in petroleum production and processing technologies, which provide high paying jobs for Americans, both domestically and abroad.

But, there are many challenges ahead, and how well we work together and how committed we are to overcoming those challenges will determine the future strength and vitality of this industry and our economy.

We all know that America cannot have economic strength without energy security. The U.S. depends on oil and gas for approximately 65% of the energy it consumes, and for over 95% of the energy in the transportation sector. Independent producers supply 40 percent of oil and 65 percent of natural gas in the U.S. Without independents, we cannot achieve our nation's goal of lessening our dependence on oil imports, which are more than 50 percent of supply today.

Every one of us here today knows that energy is the key to our economy. If it isn't available, affordable and reliable, we're playing Russian roulette with our future. Financial, land use, tax, and environmental policies -- all have an energy component. We shouldn't be putting any policy into place, unless - and until - we have considered its energy implications.

The future for oil and gas is found in many policies and programs: advances in energy technology... more sensible regulations and incentives to encourage production without harming the environment... stimulation of worldwide demand for U.S. energy goods and services - all are keys to a robust and healthy industry.

When we make policy on future uses of federal lands, the potential energy gains possible with greater access - or for that matter, the implications of restricting that access - should be fully considered before we make decisions.

Energy also has to be front-and-center as we debate tax policy. We need to have a serious dialogue about how our tax code can - and should - be used to protect and promote a valuable domestic resource, namely oil from marginal wells.

Every day, marginal wells contribute 1.3 million barrels to our domestic oil supply. I don't have to tell you that in the vocabulary of marginal wells, "shut-in" is code for "lost-for-good." The 1.3 million barrels we get each day from our marginal wells is about the same as what we import from Saudi Arabia. I know and you know - if we suddenly lost that much oil from Saudi Arabia, everyone would stand up and take notice.

Our marginal producers deserve at least the same level of attention we give to our friends, the Saudis. Next week, Secretary Richardson will be meeting with Secretary of the Treasury Rubin to discuss marginal well tax incentives.

Government can be a valuable partner. We can bring you unique technologies, adapted from a half century of investment in defense technology to locate difficult-to-find resources; to improve natural gas storage and retrieval; to extend the life of domestic energy resources, and to reduce well abandonments. Our R&D program is being driven by the needs of the producer -- the need to go deeper, into more complex reservoirs, and to produce oil and gas that, in the past, might have been abandoned.

The United States taught the world how to find and drill for oil and gas. We need to keep up the pace of technology for exploration and production. Technology is the key to the energy future. It has reduced finding costs for oil from $16 per barrel in 1979 to $4.60 today. Five or 10 years ago, 3-D seismic was a relative newcomer to our industry. In short order, time was added to the equation, making 4-D seismic possible and turning this technology into today's $500 million-a-year industry in the Gulf.

We've had many successes with our oil and gas environmental program that focuses on technologies and practices that reduce the threat to the environment and decrease the cost of effective environmental protection and compliance. Through this program, DOE has been promoting regulations that are cost effective, and based on sound science and common sense. To achieve this, we provide scientific information to support risk-based regulation and to assess environmental risks posed by oil and gas E&P operations.

DOE has been working to reduce unnecessary compliance and reporting requirements through interagency cooperation, partnerships and dialogue among industry and federal and state agencies, such as the Environmental Protection Agency, IPAA [Independent Petroleum Association of America], environmental groups, and other industry organizations. We will continue to work closely with the EPA to make sure that all regulatory decisions do not overly burden this industry. Secretary Richardson is planning to meet with EPA's Carol Browner to discuss some of your concerns. The Secretary hopes to find more common ground and common interests between EPA and your industry.

We expect to restart our oil field demonstration program. We plan to put a new solicitation out for $18 million in federal funding to demonstrate technologies that can find and recover about-to-be-lost oil. Keep in mind that this program will be cost shared with industry - total investment will come close to $50 million. Under the previous program, a total of 32 projects have been initiated under 3 reservoir classes. The projects are cost shared with industry, universities, and state agencies.

Let me also tell you about what we are doing in your state. Texas is the largest recipient of Fossil Energy's oil and gas dollars. In Fiscal Year (FY) 1998, and so far in FY 99, we funded 46 projects with a total value of $205 million. Of this total, $97 million is provided by DOE and the rest is cost shared by Texas oil and gas industry, universities, and research institutions.

Texas has more active DOE-industry cost shared oil field demonstration projects underway than any other state. These projects are testing advanced methods for finding and producing crude oil that are beyond the reach of conventional oil recovery technology. These projects could lead to billions of barrels of additional U.S. oil production from reservoirs, that otherwise, are likely to be abandoned in the next few years.

The Bureau of Economic Geology at the University of Texas is the principal contractor for a joint government-industry project to establish a public repository of reservoir rock core samples in Midland, TX. This project will make available to producers more than 400,000 boxes of cores from wells in Texas, New Mexico, and other parts of the United States.

In addition, Fossil Energy program is also funding Texas-based companies to conduct 23 separate research projects valued at more than $38 million, with over $26 million from DOE. These projects involve advanced drilling, completion, and stimulation technologies; advanced imaging systems; computer models to simulate enhanced oil recovery; heavy oil recovery; advanced gas storage concepts; and treatment and disposal of NORM, or naturally occurring radioactive materials.

Finally, we need to work together to update and change the public's view of the energy industry. An industry that spends $8 billion a year on environmental mitigation and one which will power the world for decades to come, should be an industry that is less frequently vilified - and more often valued.

Twenty-five years ago, for many of our citizens, the end of cheap, guaranteed energy came at a time when our energy options were, in fact, limited. Today, much of your industry faces a crisis of a different sort. Wells are being shut in, rig counts are down, staying afloat is tough. This time, however, we have choices - that is by far the biggest difference between 1973 and 1998.

We have the means to provide the safety net for a vital part of our energy industry. We should develop rational, far-sighted land use policies that provide future sources of fuels for economic growth while protecting the environment. We must continue to invest in technology to unlock millions of barrels of petroleum and billions of cubic feet of natural gas. We must continue taking steps to ensure a stable and secure energy future.

I hope you will call upon me with your concerns and also remember me as one of your friends.

Thank you.